How can an employee make $200K, PLUS overtime?!? The Supreme Court explains…

A company operating an offshore oil rig paid one of its “tool pushers” anywhere from $963 to $1,341 per day. His paycheck, issued every two weeks, amounted to his daily rate times the number of days he had worked in the pay period. So if the employee had worked only one day, his paycheck would total (at the range’s low end) $963; but if he had worked all 14 days, his paycheck would come to $13,482. Under that compensation scheme, the company paid the employee over $200,000 annually, with no overtime compensation.

But, the employee who supervised many others and otherwise satisfied the duties tests for the executive exemption under the Fair Labor Standards Act sued for unpaid overtime because, he claimed, the company failed to guarantee him at least $455 per week in salary.

But he was making more than that for each day of work. That point wasn’t lost on the dissent in the lawsuit that would wind its way all the way to the Supreme Court!

The majority, which included Justices Kagan, Roberts, Sotomayor, Barrett, Jackson, and Thomas, saw things differently.

The FLSA requires employers to pay overtime when they work more than 40 hours a week unless an overtime exemption covers the employee. Under the regulations, an employee falls within the “bona fide executive” exemption only if (among other things) he is paid on a “salary basis.” There’s also a highly-compensated employee (HCE) exemption. But that, too, has a salary requirement.

The question here is whether a high-earning employee is compensated on a “salary basis” when his paycheck is based solely on a daily rate.

(There’s another regulation that focuses on workers whose compensation is “computed on an hourly, a daily or a shift basis,” rather than a weekly or less frequent one. But, the employer must still guarantee the employee at least $455 each week regardless of the number of hours, days, or shifts worked. The parties agreed it did not apply.)

Everything turned on whether the employee was paid on a salary basis as described in the executive and HCE exemptions. If yes, the company doesn’t owe him overtime. If no, he’s getting PAID!

So what is it, Supreme Court?

The answer is no: [the employer] did not pay [the employee] on a salary basis as defined in §602(a). That section applies solely to employees paid by the week (or longer); it is not met when an employer pays an employee by the day, as [the employer] paid [the employee]…Suppose [the employee] is ill and works just one day in a week, for a total of $1,000. Is that lesser amount (as [the employer] argues) a predetermined, “full salary for [the] week”—or is it just one day’s pay out of the usual seven? Has the amount been paid “without regard to the number of days” he worked—or precisely with regard to that number? If ordinary language bears ordinary meaning, the answer to those questions is: the latter. A daily-rate worker’s weekly pay is always a function of how many days he has labored. It can be calculated only by counting those days once the week is over—not, as §602(a) requires, by ignoring that number and paying a predetermined amount.

So, there you have it. Pay your offshore oil rig employees (and others too) a weekly guaranteed salary of at least $684 per week (it was $455) to have a shot at the overtime exemption.

And to all you “salary exempt” folks (sigh…) — you’ll need to satisfy the duties tests of one of the exemptions too.